Ghana Plans Market Makers to Boost Bonds With Live Prices

Ghanaian regulators are planning to introduce market making, set up live trading and start debt education programs in a bid to boost bond-market activity in West Africa’s second-biggest economy.

After last year’s merger of securities depositories by the central bank and stock exchange, bond trading is still illiquid because, unlike equities, there’s no electronic platform for debt, said Stephen Tetteh, chief executive officer of the Accra-based Central Securities Depository Ghana Ltd. As the unified storehouse works to integrate platforms, Tetteh said they’re asking the government to change laws to help increase trading.

“The Securities and Exchange Commission is working on market makers who go in just to bring liquidity onto the market,” Tetteh said in an interview on Jan. 29. “We have drawn programs to go out and do a lot of education to teach people what they can do with the bond market. Once we get that, then our market will bring that liquidity.”

Ghana’s plans to boost trading come as the government raises bond issuance this year to fund a budget deficit forecast by the Finance Ministry to narrow to 8.5 percent of gross domestic product this year from 10.2 percent in 2013. The world’s second-biggest cocoa producer will sell 35 percent more cedi debt this year and will offer a 10-year note, which will be the longest local-currency term, in June.

Market Need

Live trading may happen within a year, Tetteh said. Also this year, the securities commission may ask Parliament to pass a law allowing market making, Director General Adu Anane Antwi said. The SEC, which currently issues broker-dealer permits to traders, wants to license banks and brokers to operate as market makers, he said by phone on Jan. 29. They will have the capital to buy securities in large amounts and sell when the market is in need, he said. The government cabinet is considering the proposal, a precursor to legislative approval.

Ghana’s central bank last April threatened to cancel the licenses of primary dealers for not participating in government debt auctions. Linking the depositories, which happened on Dec. 24, will give stock brokers access to the bonds depository to check on ownership.

“This by itself is expected to increase bonds trading,” Tetteh said. Brokers currently can’t access the bonds because the depositories are separate and the merged entity has one year to complete its integration, he said.

The depository, the stock exchange, and the securities commission will educate investors this year on bond trading, Tetteh said. The campaign will also see private bond issuers asked to keep ownership records in the depository, he said.

Yields Rise

Government bonds with two-year terms and higher must be listed on the stock exchange, Tetteh said. Yields on seven-year notes, currently the longest-tenure cedi debt, rose 50 basis points, or 0.5 percentage point, to 18 percent at the last auction on Nov. 13. They were unchanged at 19 percent yesterday, according to data from Standard Chartered Plc.

“We will use annual general meetings of companies to talk to people about investing in bonds,” he said. The groups will also “organize fora in parts of the country to whet interest in the bonds market,” he said.

Investors may be able to own shares in the depository, which had 556,837 accounts for bonds at the end of last year and 76,348 for stocks, in the “medium term,” Tetteh said. The Bank of Ghana owns 82 percent of the depository, while the stock exchange holds the remainder.

Ghana’s stock exchange has sub-Saharan Africa’s best-performing benchmark index this year, with a 5.1 percent increase. While volumes picked up since the 2009 move to live trading and the gauge’s capital rose to 62 billion cedis ($25 billion) as of yesterday from about 21 billion cedis in 2010, investors need to get used to the idea of trading both stocks and bonds for profit, Tetteh said. The composite measure rose a 13th day, adding 0.5 percent to 2,253.57 by 12:22 p.m. in Accra, the highest on record.

“That idea of making money on bonds, and even equity hasn’t really gone down with Ghanaian investors,” he said. “What we need are people who go into the securities market to make money, somebody who buys in the morning and at two o’clock he wants to sell because the market has moved.”

To contact the reporter on this story: Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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